Ulta Beauty (NASDAQ: ULTA) traders have not too long ago needed to cope with an surprising flip of occasions — underperformance. Since hitting all-time highs over $313 per share in early June, the inventory is down over 20%.
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The weak spot is not resulting from any missteps from the corporate however current strikes by malls like Lord & Taylor, Macy’s, and J.C. Penney to supply massive reductions on high-end cosmetics. The strikes are considerably unprecedented within the , as status make-up has lengthy been an merchandise malls prevented discounting in any respect prices. However, within the wake of massive declines in mall and division retailer site visitors, drastic measures at the moment are obligatory.
Though Ulta inventory has bought off closely on these developments, shareholders want to recollect what makes this firm so particular.
Superior enterprise mannequin
Ulta’s current dominance of the retail cosmetics isn’t merely primarily based on pricing. Its enterprise mannequin is to tear down boundaries between high-end status choices and low-end drug retailer manufacturers, placing all of them below one roof. Moreover, the corporate’s shops are largely in buying facilities and strip malls — not conventional malls the place site visitors is struggling. That wide variety and comfort is augmented by common occasions geared towards “beauty enthusiasts”, which makes for a enjoyable in-store expertise. These attributes mix with aggressive pricing to maintain clients coming again.
Enviable loyalty program
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Complementing the enterprise mannequin is Ulta’s glorious loyalty program, which not solely presents clients reductions after they earn factors but in addition permits Ulta to gather knowledge on what clients need. Ulta can tailor stock and customise reductions on incessantly purchased objects, and these personalization efforts make clients really feel at residence.
ULTAmate Rewards has been a raging success, increasing to 24.5 million members final quarter, good for a 26% progress fee. The energy of this system makes it much less probably that taking part clients will go to competing retailers for a one-off low cost.
Proprietary objects and providers
Finally, Ulta has sure services that malls, and even Sephora, don’t. For occasion, Ulta builds magnificence salons proper into their shops. While this phase has not carried out in addition to conventional beauty gross sales, it is nonetheless rising, and the corporate has made a push to improve their salon choices in 2017.
Moreover, Ulta will probably be rolling out MAC make-up counters at roughly 100 areas throughout the nation. MAC is the primary status make-up model within the nation and had beforehand been unavailable outdoors of MAC’s personal retail shops and choose malls (not together with Sephora). While MAC had historically been very selective with their gross sales channels, in mild of Ulta’s potential to draw clients (and double-digit comparable gross sales progress), the businesses struck a deal earlier this 12 months.
The MAC partnership is one other indication of Ulta’s “cool” issue and model status as the place for magnificence lovers. That ought to preserve the excitement alive and clients returning, regardless of how a lot rivals could slash costs.
While Ulta inventory has all the time commanded a pricier valuation, that hasn’t stopped shares from practically tripling up to now three years. After the current sell-off, the inventory now trades at 30 occasions ahead earnings estimates. Considering the corporate grew gross sales over 22% and earnings per share over 40% final quarter, I feel that is a good worth for this industry-leading firm.
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Billy Duberstein owns shares of Ulta Beauty, Inc. The Motley Fool owns shares of and recommends Ulta Beauty, Inc.. The Motley Fool has a disclosure coverage.
Why Ulta Beauty Inc Shareholders Have Nothing to Worry About by: Pamela Hendrix published: